Saturday, June 7, 2008

Move That Cash

On April 17, 2008, the King warned sires and princesses to "Move That Cash, Let me be clear. Move your cash from brokerage firms, securities firms and banks pronto to the more secure credit union environment in savings accounts only.

Numerous Banks regulated by the Office of the Comptroller of the Currency, a division of the United States Treasury Department, are now operating under a "Memorandum of Understanding" like National City Bank. These agreement are confidential to prevent a run on deposits, but they are leaking out. They effectively put a bank on probation and stop lending activity.

Many investors in market-rate secured shares, bonds and securities are unable to retrieve their investments because their banks are operating under similar agreements.

Following is a chart of largest issuers of outstanding municipal auction-rate securities from 2000 to 2007.

1. Citigroup, $39.73 billion *
2. UBS, $31.50 billion
3. Morgan Stanley, $20.13 billion
4. Goldman Sachs, $17.80 billion
5. JP Morgan, $15.72 billion
6. Bear Stearns, $12.61 billion
7. Merrill Lynch, $12.37 billion
8. Bank of America, $11.03 billion
9. RBC Dain Rauscher, $10.25 billion
10. Lehman Brothers, $9.74 billion
*Includes Salomon Smith Barney.
Source: Bloomberg data.

Market-rate bonds are one of those esoteric exotic financial instruments that no body understands but buys anyway to get a higher than normal return and brokerage houses sale them because they can churn accounts. Anyway, that market collapsed completely and now getting any return is out of the question. Move your cash now!

The King
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